LITERATURE REVIEW

The study aims at accessing the different factors which resists common man in India from
investing in stock market. Besides analyzing the factors, methods to overcome such hesitations
with the sole motive to induce investment in Indian Stock Market have also been worked upon.

The purpose of this chapter is to present a review of literature relating to the study conducted in
context to different concepts and ideas of other researchers. There has been a wide range of
studies in regard to Indian Stock Market. This segment highlights certain important studies that
are relevant to the context.

Tripathy, Trilochan. Gil-Alana, Luis A. (2015)

This paper models time-varying volatility in one of the Indian main stock markets, namely, the
National Stock Exchange (NSE) located in Mumbai, investigating whether it has been affected
by the recent global financial crisis. A Chow test indicates the presence of a structural break.
Both symmetric and asymmetric GARCH models suggest that the volatility of NSE returns is
persistent and asymmetric and has increased as a result of the crisis. The model under the
Generalized Error Distribution appears to be the most suitable one. However, its out-of-sample
forecasting performance is relatively poor.

Balasubramanian, Bala N and Ramaswamy, Anand. (2014)

The research studied concentrated ownership and control is the predominant shareholding pattern
in India. Over the 11-year study period from December 2001–December 2011, controlling
shareholders further entrenched themselves by substantially increasing their holdings. Foreign
companies in this study strengthened their entrenchment, with median holdings running over
50% rights through. The changes in the Government policy opened up several business sectors
for majority foreign direct investment could have been a contributing factor for the decline in the
number of listed companies. Government-owned companies in this sample witnessed a decline in
non-institutional share holdings over the study period, with institutional holdings showing
corresponding increases.

19
Rudra P. Pradhan; Flávio De São Pedro Filho; John H. Hall (2014)
This paper investigates the impact of stock market development, money supply and inflation on
economic growth in India during the post-globalisation era of the 1990s, especially during the
period from 1994 to 2012. Using autoregressive distributive lag (ARDL) bounds testing
approach, the study finds stock market development, money supply, inflation and economic
growth are co integrated, suggesting the presence of a long-run equilibrium relationship between
them. The vector autoregressive error correction model (VECM) further confirms the existence
of both bidirectional and unidirectional causality between economic growth, money supply,
inflation and stock market development in India. The policy implication of this study is that
inflation and money supply can be considered a policy variable to predict both economic growth
and stock market development in the Indian economy during the post globalisation era.

Chauhan, Daksha Pratapsinh. Dec (2013)

The researcher has studied the financial performance of NSE and BSE over the last decade. The
study aims to find out the stock exchange which is performing financially better on various
bases. This study is limited for only financial performance covering averages of profits, listing
income, brokerage income, operating expenses, Return on Capital Employed, total revenue
income, etc. The tool for appraisal of financial performance is mean, standard deviation, co-
efficient of variance and trend analysis.
They have looked at the price returns of individual stocks, with data from the National Stock
Exchange (NSE) and daily closing price data from both NSE and the Bombay Stock Exchange
(BSE), the two largest exchanges in India.

Bala, Anju. (2013)

The research studied the Indian stock market in depth. The study was conducted to find out the
past, present and future trend or the prospect of Indian stock market. This study provided
guidelines to investors to maximize their profit by minimizing risk. High degree of volatility in
the present in Indian stock market will lead to development of future. The risk can be mitigated
in stock market by spreading of investment across various options.

20
Venkateswara K.S. Kumar & Prof. Devi V.Rama Devi (2013)
Conducted by Professors of KLU Business School, KL University, Andhra Pradesh, the above
mentioned research emphasizes the contribution of Foreign Direct Investment (FDI) & Foreign
Institutional Investors (FII) on the Stock Market. It is also an analysis on the trend & pattern of
FDI & FII flow in the Indian economy, with its influencing aspects on the country.

Narayan, Paresh Kumar & Ahmed, Huson Ali & Sharma, Susan Sunila & K.P.,
Prabheesh (2014)
In this paper, using a range of technical trading and momentum trading strategies, we show that
the Indian stock market is profitable. We find robust evidence that investing in some sectors is
relatively more profitable than investing in others. We show that sectoral heterogeneity with
respect to profitability is a result of the gradual diffusion of information from the market to the
sectors. Specifically, we show that while the market predicts returns of sectors, the magnitude of
predictability varies with sectors. Our results are robust to a range of trading strategies.

Mishra, Ankita. Mishra, Vinod. Smyth, Russell. (2014)

This study tests the random walk hypothesis for the Indian stock market. Using 19 years of
monthly data on six indices from the National Stock Exchange (NSE) and the
Bombay Stock Exchange (BSE), this study applies three different unit root tests with two
structural breaks to analyse the random walk hypothesis. We find that unit root tests that allow
for two structural breaks alone are not able to reject the unit root null; however, a recently
developed unit root test that simultaneously accounts for heteroscedasticity and structural breaks,
finds that the stock indices are mean reverting. Our results point to the importance of addressing
heteroscedasticity when testing for a random walk with high frequency financial data.

Munda Santosh (2014) researched that there is an extraordinary growth in the investment sector
both in terms of volume and number of investors in India over the past decade due to the
deregulation of the financial sector. There are various investment products with numerous
options to lure the investors to invest. Thus it becomes essential that the regulators and the
various other stakeholders of stock exchanges be proactive in taking care of the interests of the
individual investors.

21
D.Suganya and Dr. S.Parvathi (2014) in their research on Equity Investors Risk Tolerance Level
during the Volatility of Indian Stock Market found out that majority of the investors are
investing in equity for the objective of growth.

M. Thenmozhi and Chandra Abhijeet (2013) conducted a research on India Volatility Index and
Risk Management in the Indian Stock Market and demonstrated that there is a statistically
significant negative relationship between the stock market returns and volatility.

Roy Sankharaj (2013) conducted a research on Economic Recession and Volatility in the Indian
Stock Market. This paper provides evidence on the behavior of stock prices and volatility during
the period of pre and post-recession period. After the study of the stock market volatility it has
been concluded that the volatility during the phase of economic recession i.e. 2008 was high in
the Indian market.

A.Bhatt Dr. Kaushal (2013) said that most of the investors are very sensitive about safety of their
investment. They want more safety and reliability. Current trend and easy access is not affected
the investor as much as safety and reliability. Most of the earning people invest their income up
to different level in any sector, so investment company have also very much scope of gaining
business.

Naliniprava Tripathy (2013)

This research examines the efficiency of Indian stock market by using daily closing price of BSE
SENSEX from August 2002 to March 2011. The study has used unit root test, autocorrelation
test, runs test, GARCH (symmetric) EGARCH and TARCH (asymmetric) models to determine
the random walk behaviour of Indian stock market. Further this study has employed various
forecasting approaches to measure the forecasting accuracy of symmetric and asymmetric
models. This study suggests that asymmetric models provide better forecasting performance than
symmetric models. The result of the study shows that Indian stock market does not exhibit a
random walk behaviour and weak form of market efficiency. The study concludes that investor
can make abnormal profits by studying and forecasting the prices of assets in this market.

22
Didier, Tatiana & Schmukler, Sergio L. (2013)
The study was on the extent to which firms in China and India use capital markets to obtain
financing and grow. Using new data on domestic and international capital raising and firm
performance, it finds that financial market activity has expanded less since the 1990s than
aggregate figures suggest. Relatively few firms raise capital and even fewer attract most of the
financing. Moreover, firms that issue equity or bonds are different and behave differently from
other publicly listed firms. Among other things, they are typically larger and grow faster. The
differences between users and nonusers exist before the capital raising, are associated with the
probability of raising capital, and become more pronounced afterward. The size distribution of
issuing firms shifts more over time than the distribution of those that do not issue, suggesting
little convergence in size among listed firms.

Mrunal Joshi (2013)

In current scenario of Indian stock market each investors are required to be alert enough about
happenings in the market. For that purpose it is very important for each and every investor to be
aware about major factors affecting stock market. In this paper it has been tried to find out major
factors responsible for up-down movement in Indian stock market. From the study it has been
found that factors like Flow of Foreign Institutional Investors, Political Stability, Growth of
Gross Domestic Product, Inflation, Liquidity and different interest rate and Global level factors
are major factors responsible to create movement in Indian stock market.
Archana S., Safeer Mohammed and Kevin Dr. S. (2013) studied the market anomalies in the
Indian Stock Market the study mainly tests the existence of the market anomalies in the Indian
market by comparing averages of the mean of the index values of BSE index from the year Jan
2008 to Dec 2012. The weekend effect was proved in Indian stock market. Turn of the month
effect and Turn of the year effect are minimally visible but not statistically proven for the
analyzed period. Stock split effect testing was proved negative except for Jindal steel.

Pathan, Rubina & Masih, Mansur (2013)

The purpose of this paper is to study the direction of causality between the stock market and
macroeconomic variables. India is taken as a case study. Although, there have been many studies
which attempted to find out the relationship between Indian stock market and economic

23
variables, this paper is a fresh attempt to investigate the co integrating relationship and Granger-
causality between the variables. The paper considers the monthly data of major macroeconomic
variables which are interest rate, money supply, wholesale price index, and exchange rate and
also an important variable for any stock market and economy which is Foreign Institutional
investment. Our findings provide evidence of a stable long run equilibrium relationship between
the stock market and economic growth in India. The study reconfirms the traditional belief that
the real economic variables continue to affect the stock market in the post-reform
era in India and also highlights the insignificance of certain variables with respect to
stock market.

P. Krishna Prasanna, Anish S. Menon (2013)

This study attempts to analyse the speed at which information gets incorporated into the various
stock indices in India. Four alternate speed estimators viz., the AR (1) model, the ARMA (1, 1)
model, the ARMA (1, X) model, and the cross-covariance estimator were calculated to estimate
the rate at which information is adjusted. The lead–lag relationships between indices with varied
characteristics were also analysed. It was observed that the Sensex and the Nifty indices, the
constituents of which are large capitalisation stocks, led the smaller indices till 2009. This was
disturbed in 2010 and 2011, especially by bank indices.

R. Krishnan, Vinod Mishra (2013)

This paper is an empirical study of the intraday liquidity patterns on the National Stock
Exchange (NSE) of India. Using trade and quotes data on stocks contained in the NIFTY index,
we find that most of the volume and spread related to liquidity measures are U-shaped, similar to
those found in a quote driven market. Such patterns also indicate a contradictory feature of
concurrent high trading volume and wide spreads, a feature that is new to an order driven market
such as the NSE. Additionally, this paper also measures marketwise liquidity by checking for
commonality among liquidity measures. Empirical results show that there is only weak evidence
of commonality, suggesting sensitivity to commonality need not be a priced risk.

Sultana Dr. Syed Tabassum and Pardhasaradhi Dr S (2012) in this study the most influencing
attributes were identified and ranked based on the frequency of not at all important rating given

24
by the investor. To identify factors influencing the behavior of Indian individual equity investors
the current study has applied factor analysis. After applying factor analysis it was found that all
the 40 attributes are reduced to the following ten factors namely Individual Eccentric, Wealth
Maximization, Risk Minimization, Brand Perception, Social Responsibility, Financial
Expectation, Accounting information, Government & Media, Economic Expectation and
Advocate recommendation factors.

Markku Kaustia, Samuli Knüpfer (2012)

Peer performance can influence the adoption of financial innovations and investment styles. We
present evidence of this type of social influence: recent stock returns that local peers experience
affect an individual's stock market entry decision, particularly in areas with better opportunities
for social learning. The likelihood of entry does not decrease as returns fall below zero,
consistent with people not talking about decisions that have produced inferior outcomes. Market
returns, media coverage, local stocks, omitted local variables, short sales constraints, and stock
purchases within households do not seem to explain these results.

Loomba Jatinder (2012) stated the impact of FIIs on volatility of Indian Stock Market. This study
shows that the increase in FIIs investments brings inflow of capital and the country can have
access to foreign capital. It also showed a flip side that the foreign capital is free and
unpredictable and is always on the lookout of profit, the reason being, the portfolio managers of
these FIIs are always on their toes for booking profits for their dynamic portfolios across
countries.

Mukherjee Debijan (2012) conducted a comparative analysis of Indian Stock Markets with the
International Markets. This study validated the popular belief that the markets in general and
Indian market in particular is more integrated with other global exchanges from 2002-2003
onwards.

A research conducted by Plannersearch.org on investing through life stages highlighted the

importance of different factors like growth and income, time and risk tolerance and asset
allocation on the investing pattern of the investors.

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Ruchika Gahlot & Saroj Kumar Datta (2012)
The purpose of this paper is to examine the impact of the future of trading on volatility as well as
the efficiency of the stock market of BRIC (Brazil, Russia, India and China) countries. This
study also investigates the presence of day-of-the-week effecting BRIC countries' stock market.
Design/methodology/approach – This study uses closing prices of IBrx-50 for Brazil, RTSI for
Russia, Nifty for India and CSI300 for China to represent the stock market of BRIC countries.
The Run and ACF tests are used to see impact on market efficiency. GARCH M model is used to
see the impact on volatility and day-of-the week effect. Findings are the insignificant coefficient
of variance in the conditional mean equation of GARCH M implies that the market doesn't
provide higher returns during the high volatility period. The results of the Run test showed that
the Russian stock market became efficient after introduction of future trading.

Rudra P. Pradhan (2011)

The paper examines the long run relationship between financial development and growth
in India in a trivariate framework by incorporating stock market development. It finds
that stock market development has substantial impact on finance- growth nexus. While financial
development and economic growth are bidirectional, economic growth and stock market
development are unidirectional. The paper concludes that stock market development is an
integral part economic growth, which is, in turn, associated with financial development in the
Indian economy.

Anver Sadath & Bandi Kamaiah (2011)

The National Stock Exchange (NSE) of India was ranked the first in terms of trading of
individual stock futures in the year 2007. Financial derivatives like stock futures have always
been accused of causing instability in the spot market. This paper investigates the effects of
individual stock futures expiration on the underlying stock market in the NSE. Using daily data
of 42 sample stocks of high market capitalization, this study has found positive abnormal return
and also abnormal volume on days prior to the expiration day.

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Abhijeet Chandra, Ravinder Kumar (2011)
Individual investor behaviour is motivated by a variety of psychological heuristics and biases.
Using survey data of more than 350 individual investors, we document four important results in
the context of Indian individual investor behaviour. First, investors make investment decisions
based on heuristics; they assume price as decision-anchor and are overconfident in their
judgments. Second, their investment behaviour is highly influenced by representativeness and
they do lot of mental accounting in the sense of grouping their gains and losses while making
decisions. Third, though investors follow fundamentals, they tend to discount complex
information at first instance; they prefer those pieces of information which are easily adjustable
into their investment decision-making. Finally, there exists an asymmetric pattern of distribution
and usage of information among individual investors which affects their investment behaviour to
greater extent.

Gupta Nupur (2011)

In this study a comparison had been made between stock markets of Asia such as Indonesia,
Korea, Japan, Malaysia and Hong Kong. These countries are becoming a hot spot for foreign
capital as low capital and this is leading to advancement of technology. The research had been
conducted to show whether BSE AND NSE provide better diversification in long run and short
run to both institutional investors and international investors. The study provides the information
to the investors related to investment risk and return. This paper finds the non-normality feature
in the stock distribution of the above mentioned economies. The negative skewnessin the long
run and short run indicates that there will be more returns and higher opportunity for investment.

Ranpura Darshan, Patel Bhavesh K. (2011)

In this research paper the author tries to show Indian stock market is interdependent on foreign
stock market. For this purpose the study examines the linkages between different markets. The
aim of the study was to identify the extent the events happening in one stock market affects the
other stock market and to study the co movement of stock market of India with other developed
and developing countries. The data from July 1997 to Dec 2009 of all the selected stock
exchange in term of their Local currencies have been taken under consideration. The outcome
was that BSE provided better risk adjusted return for his particular period.

27
Lao, Paulo. Singh, Harminder (2011)
The existence of herding behaviour challenges the validity of the “efficient market hypothesis”.
This study examines herding behaviour in the Chinese and Indian stock markets; our findings
suggest that herding behaviour exists in both. The level of herding depends on market conditions.
In the Chinese market, herding behaviour is greater when the market is falling and the trading
volume is high. On the other hand, in India the study finds that it occurs during up-swings in
market conditions. Herding behaviour is more prevalent during large market movements in both
markets. In relative terms, a lower prevalence of herding behaviour was detected in the Indian
stock market.

Amalendu Bhunia (2011)

This paper examines the causal relationship between stock prices and exchange rates, using data
from 2 April 2001 to 31 March 2011 about India. Macroeconomic variables are of crucial
importance for determining the effects on stock prices and investment decisions. There are many
empirical studies to disclose the relationship between macroeconomic variables such as interest
rate, inflation, exchange rates, money supply etc. and stock indexes. However, the direction of
causality still remains unresolved in both theory and empirics. In the present study, national,
services, financials, industrials, and technology indices are taken as stock price indices. The
results of empirical study indicate that there is bidirectional causal relationship between
exchange rate and all stock market indices. While the negative causality exists from national,
services, financials and industrials indices to exchange rate, there is a positive causal relationship
from technology indices to exchange rate.

Jay Desai , Nisarg A Joshi , Atul Chokshi and Dr. Ashvin Ramchandra Dave (2011)
This paper examines seasonality effect in Indian Stocks and Indices by calendar day approach,
day of week approach and week of the month approach. The results of all the approaches reveal
significantly higher returns on some of the days and period in a month. The day of the week
effect is found to be absent in our study. Various explanations for the observed anomalies have
been considered based on past studies, but none could provide adequate explanations for the
observed return regularities. The introduction of derivatives segment in India may have created a

28
pattern near expiry. However, based on the findings, the study tries to evolve certain trading
strategies which could benefit in the decision making of the investors concerned with timing of
the stock market.

Garg, Ashish & Bodla, B. S. (2011)

The study is an attempt to determine the impact of Foreign Institutional Investments (FIIs) on
Indian stock market as India has emerged as one of the most attractive investment
destinations in Asia. To achieve the above objective, the study has utilized the daily data
on stock market index (Sensex), FII flows and other related variables for a period of 22 years
ranging from January 1986 to December 2007. The study has used combined regression time
series model and GARCH Model for determining the impact of FIIs on share market return and
volatility, respectively. The results show that volatility of Indian stock market as well as its
return has declined after opening the stock market for FIIs.

Patidar Sohan (2010) studied investor behavior towards share market. The findings of the study
indicated that as per the age-wise classification, the investors in the age group of below 35 years
are actively participating in the speculation trade and the age group above 55 hesitate to take risk
and are not at all interested in the share market.

Dicle, Mehmet F. & Beyhan, Aydin & Yao, Lee J. (2010)

This study evaluates one of the most important emerging markets, India (Bombay Stock
Exchange and Indian National Exchange), for its efficiency and for its potential to offer
diversification benefits to international investors. Market-wide tests include; 1) contemporaneous
relationship, 2) Granger type causality and 3) day-of-the-week effect. Tests on individual
Indian stocks include: 1) panel estimation of Granger causality, 2) stock-by-stock estimation of
Granger causality and 3) runs test. In sum, Indian markets are well integrated with the
international equity markets, a characteristic that lowers the international diversification benefits.
While day-of-the-week effect is an international spillover, it may be possible to predict
individual Indian stocks' returns through causality with international equity markets and through
momentum trading techniques.

29
Allaudeen Hameed, Wenjin Kang, S. Viswanathan (2010)

Consistent with recent theoretical models where binding capital constraints lead to sudden
liquidity dry-ups, we find that negative market returns decrease stock liquidity, especially during
times of tightness in the funding market. The asymmetric effect of changes in aggregate asset
values on liquidity and commonality in liquidity cannot be fully explained by changes in demand
for liquidity or volatility effects. We document inter industry spillover effects in liquidity, which
are likely to arise from capital constraints in the market making sector. We also find
economically significant returns to supplying liquidity following periods of large drops in market
valuations.

D. N. Rao, S. B. Rao (2010)

The study, adopting the classification of investors and categorization of funds by Association of
Mutual Funds in India (AMFI) empirically researches the investment patterns of the five investor
groups in the eight fund categories; examines the portfolios of the investor groups to identify
their propensity for specific fund categories and identifies the dominant investor groups in terms
of quantum of investment and investor folios. Further, in order to examine the common thread
among the investment patterns of the investor groups, ten hypotheses have been formulated and
tested for statistical significance.

Som Sankar Sen (2009)

Liquidity is one of the key ingredients of any stock market. Lack of liquidity or illiquidity is a
concern to the investing community. This paper, using impact cost as a proxy to illiquidity,
addresses a few key areas of stock market illiquidity of the National Stock Exchange (NSE)
of India. Using autoregressive models, illiquidity shocks have been computed. Moreover,
applying the GARCH model to illiquidity shocks, a series of conditional variances have also
been calculated. Furthermore, a negative correlation has been found between illiquidity shocks
and monthly market returns.

Mukherjee and Bose (2008)

They investigated the integration of India with the developed countries such as US, Japan, and
five other Asia Pacific market for period in between 1999 to 2005. It founded that stock returns

30
in India were led by major stock exchange return in US, Japan, Singapore, South Korea. They
also founded Indian market exerted considerable influence in stock return in Japan and South
Korea along with Malaysia and Taiwan.

Tripathi Dr. Vanita (2008) in her survey on the investment strategies in Indian Stock Market said
that most of the investors used both the fundamental and the technical analysis while investing in
the Indian Stock Market. The investors believed that various company fundamentals significantly
influence the stock prices in India.

Vanita Tripathi, Issued in May (2008)

This paper examines the perceptions, preferences and various investment strategies
in Indian stock market on the basis of a survey among 93 investment analysts, fund managers
and active equity investors based at Delhi and Mumbai during May-October 2007. Survey
findings reveal that investors use both fundamental as well as technical analysis while investing
in Indian stock market. Most of the respondents strongly agree that various company
fundamentals (such as size, book to market equity, price earnings ratio, leverage etc.)
significantly influence stock prices and hence addition of these factors in asset pricing model can
better explain cross sectional variations in equity returns in India. In a nutshell there has been a
shift from purely technical analysis based strategies to the one which involves both fundamental
and technical analysis. Moreover the investment horizon of investors has also reduced due to
higher volatility.

Raj Kumar Pan, Sitabhra Sinha (2008)

One of the principal statistical features characterizing the activity in financial markets is the
distribution of fluctuations in market indicators such as the index. While the developed stock
markets, e.g., the New York Stock Exchange (NYSE) have been found to show heavy-tailed
return distribution with a characteristic power-law exponent, the universality of such behavior
has been debated, particularly in regard to emerging markets. Here we investigate the
distribution of several indices from the Indian financial market, one of the largest emerging
markets in the world. We have used tick-by-tick data from the National Stock Exchange (NSE),

31
as well as, daily closing data from both the NSE and Bombay Stock Exchange (BSE). We find
that the cumulative distributions of index returns have long tails consistent with a power law
having exponent α≈3, at time scales of both 1 min and 1 day. This “inverse-cubic law” is
quantitatively similar to what has been observed in developed markets, thereby providing strong
evidence of universality in the behavior of market fluctuations.

M. Suresh Babu & K.P. Prabheesh (2008)

This paper examines the dynamic interaction between FII flows and stock market returns in
Indian stock market. Using daily data from January 2003 to February 2007, VAR framework and
Granger causality test, we find the existence of bidirectional causality between FII flows
and stock returns. Further analysis through impulse response function indicates that FII flows are
more stock return driven. We also find support for information revelation hypothesis and
momentum trading hypothesis.

Krishna Reddy Chittedi (2008)

The paper analysed a performance of the Sensex vs. FIIs in Indian stock market and some of the
most talked about movements of Sensex starting with the secondary market summary of each
year. FII s investments in BSE Sensex reveal that the liquidity as well as volatility was highly
influenced by FII flows. FIIs are significant factor determining the liquidity and volatility in
the stock market prices. After going through all the analysis regarding the stock market in last 2
years, we can say that stock market touched its peak at 21000 but then crashed badly. Though the
Sensex is a barometer and after seeing such fluctuations one could be afraid of investing. So
even after such downturns, we can be hopeful for a positive market.
Nidhi Dhamija (2008)
The increase in the volume of foreign institutional investment (FII) inflows in recent years has
led to concerns regarding the volatility of these flows, threat of capital flight, its impact on
the stock markets and influence of changes in regulatory regimes. The determinants and
destinations of these flows and how are they influencing economic development in the country
have also been debated. This paper examines the role of various factors relating to individual
firm-level characteristics and macroeconomic-level conditions influencing FII investment. The
regulatory environment of the host country has an important impact on FII inflows. As the pace

32
of foreign investment began to accelerate, regulatory policies have changed to keep up with
changed domestic scenarios. The paper also provides a review of these changes.

Sarkar, Prabirjit (2007)

The paper analyses a new Lexi metric dataset for India relating to the protection of shareholders
of the limited liability corporate sector and examines the impact of the changes in the
shareholder protection law on economic development through stock market development. It finds
no long-term relationship between corporate governance relating to shareholder protection
and stock market developments and no relevance of stock market for economic development
through capital accumulation.

Ram Kumar Kakani, Tanmoy Chatterjee (2007)

This paper probes into the recent bull run of the Indian equity markets. Using capital market data
and facts it is found that the recent equity markets bull run is a shallow one, especially during the
last two years. It is observed that this shallowness is due to - (a) Index rally being driven by only
a few big stocks with large number of underperformers; and (b) Increasing narrowness of even
the broad equity markets. In fact, in the last two years, more than 82% of the gains in BSE
Sensitive Index (India's barometer for equity markets) can be explained by a mere seven stocks.
The results are no different with even NSE Nifty Index. While the foreign institutional investors
own investment norms make the funds get concentrated to a few but the problem gets aggravated
due to the role being played by the institutional intermediaries (especially the stock exchanges by
promoting F&O), government, analysts, and investment bankers in the same and the wide spread
inter-linkage among them. This paper explores the above issues and other links which are
increasing the shallowness of the Indian equity markets. The above issues do aggravate the
chances of systemic errors and failures leading to one side movements in the market.

P. M. Vasudev (2007)
The paper reviews the developments in the capital markets and corporate governance in India
since the early 1990s when the government of India adopted the economic liberalization
programme. The legislative changes significantly altered the theme of Indian Companies Act
1956, which is based on the Companies Act 1948 (UK). The amendments, such as the

33
permission for nonvoting shares and buybacks, carried the statute away from the earlier
“business model” and towards the 'financial model' of the Delaware variety. Simultaneously, the
government established the Securities Exchange Board of India (SEBI), patterned on the
Securities and Exchange Commission of US. Through a number of other policy measures, the
government steered greater investments in the stock market and promoted the stock market as a
central institution in the society. The article points out that the reform effort was inspired, at least
in part, by the government’s reliance on foreign portfolio inflows into the Indian stock market to
fund the country’s trade and current account deficits.

Rothak Kiran, Patel Rishikesh, and Patil Ashvin (2007) in a study of Indian Stock Market using
the data from January 195 to December 199 concluded that high stock returns on Wednesday and
Monday and lowest returns on Friday due to t+5 rolling settlement effects. Another study of day-
of-the week effect by Golaka C., Nath and Manoj Dalvi in the same market evidenced
significantly higher returns on Mondays and Fridays than on other days of the week before
rolling effect in January 2002 but after the introduction of rolling settlement, only Friday effect
was seen in the market SEBI (2004) conducted research in on Stock Market Volatility:
International Comparison which concluded that at that point in time some of the countries such
as the UK, France, Germany and Australia provided low return and higher volatility (compared
to the U.S.) and India was a bright spot for the investors.

Ash Narayan Sah, G. Omkarnath (2006)

Equity derivatives trading started on June 9, 2000 with introduction of stock index futures by
Bombay Stock Exchange (BSE). National Stock Exchange (NSE) also commenced its trading on
12 June, 2000 based on S&P Nifty. Subsequently, other products like stock futures on individual
securities, index options and options on individual securities were introduced. This paper tries to
examine the impact of derivatives trading on the volatility of S&P Nifty and BSE Sensex using
ARCH/GARCH technique. The results established that introduction of futures and options have
negligible or no effect on the volatility as evident from GARCH (1, 1) model. When surrogate
index taken into consideration S&P Nifty showed decline in volatility while BSE Sensex
exhibited rise in volatility. EGARCH model indicates fall in volatility in case of all indices.

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Sanjay Sehgal and Vanita Tripathi (2005)
The study is an attempt to test if there is a size effect in Indian stock market. The data comprises
of top 482 Indian companies for the period 1990-2003. A strong size premium was found using
six alternative measures of company size viz. Market capitalization, Enterprise Value, Net Fixed
Assets, Net Annual sales, Total Assets and Net Working Capital. Further the size based
investment strategy seems to be economically feasible as it provides extra normal returns on risk
adjusted basis. Frequent re balancing of size based portfolio is however found to be undesirable.
The study has strong implications for mutual funds managers, investment analysts as well as
small investors who are continuously on lookout for trading strategies that beat the market. The
presence of a strong size premium also raises doubts about the informational efficiency of Indian
equity market.

Kapil Gupta, Balwinder Singh (2006)

The study investigates weak form of efficiency in Indian equity futures market. For this purpose,
informational efficiency of the Nifty futures and 24 stock futures is examined. The Nifty
and stock futures returns are found to be deviating from normal distribution. The futures prices
are found to be nonstationary at levels whereas, first difference futures returns are stationary.
Empirical analysis finds evidence of statistical dependence in the returns generating process.
Further analysis through Autoregressive Integrated Moving Average (ARIMA) process reveals
that the Nifty and stock futures returns are not independent and shows strong dependencies.

Wood Ryan & Zaichkowsky (2004) Judith Lynne studied on Attitudes and Trading Behavior of
Stock Market Investors. This study identifies and characterizes segments of individual investors
based on their shared investing attitudes and behavior. A behavioral finance literature review
reveals five main constructs that drive investor behaviour: investment horizon, confidence,
control, risk attitude, and personalization of loss.

Renu Kohli (2004)

This paper examines the impact of capital flows on the domestic financial sector in India. Inflow
of foreign capital, it is found, has a significant impact on domestic money supply
and stock market growth, liquidity and volatility. The banking sector, however, remains

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relatively insulated due to the policy responses of the central bank and barriers to direct capital
inflows into the banking system. The paper concludes with a discussion of the costs of these
policies in the event of a heavy inflow of foreign capital.

Harrison Hong, Jeffrey D. Kubik, Jeremy C. Stein (2004)

We propose that stock-market participation is influenced by social interaction. In our model, any
given "social" investor finds the market more attractive when more of his peers participate. We
test this theory using data from the Health and Retirement Study, and find that social households-
those who interact with their neighbours, or attend church-are substantially more likely to invest
in the market than non-social households, controlling for wealth, race, education, and risk
tolerance. Moreover, consistent with a peer-effects story, the impact of sociability is stronger in
states where stock-market participation rates are higher.

Poonam Gupta & James P. F. Gordon (2003)

This paper analyses the factors affecting portfolio equity flows into India using monthly data.
Flows to India are small compared to other emerging markets, but seem to be relatively less
volatile. They also seem to be quite resilient. The paper shows that portfolio flows are
determined by both external and domestic factors. Among external factors, LIBOR and
emerging market stock returns are important, while the primary domestic determinants are the
lagged stock return and changes in credit ratings. In quantitative terms, both external and
domestic factors are found to be about equally important.

Shrivastav Anubha (2003) Since Indian stock market is vast and attracts investors as a hotspot of
investment .The Indian market is steadily growing and had allured domestic investor’s
community and foreign investors group in the past .the major part of investment in Indian market
is attributed to institutional investors among whom foreign investors are of primary importance.
one eminent concern in the matter is whether these foreign investors (FII) direct the Indian stock
market .This paper examines whether market movement can be explained by these investors and
their impact on the stock markets. FII, because of its short-term nature, can have bidirectional
causation with the returns of other domestic financial markets such as money markets, stock
markets, and foreign exchange markets. Hence, understanding the determinants of FII is very

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important for any emerging economy as FII exerts a larger impact on the domestic financial
markets in the short run and a real impact in the long run. The present paper is an attempt to find
out determinants of foreign institutional investment in India, a country that opened its economy
to foreign capital following a foreign exchange crisis. The objective of the study is to find out
whether there exist relationship between FII and Indian stock market.

Pratap Chandra Biswal & B. Kamaiah (2001)

This paper examines the role of stock markets and banks in promoting economic growth in India.
Using the stock market development indicators viz., market size, liquidity, and volatility along
with bank credit to GDP ratio as an indicator of banking sector development, and Industrial
Production (IP) as the proxy for GDP, the present study shows that it is not the banking
development but the stock market growth, which shares a relationship with economic
growth in India during the period 1991.

Renu Kohli (2001)

This paper documents trends in movement and composition of capital flows into India in a
comparative perspective, examines the impact of these flows upon key macroeconomic
variables in the economy, and dwells on implications for economic policy. We find that an
inflow of foreign capital results in a real appreciation and has a significant impact on domestic
money supply. During a capital surge, these effects have been countered through intervention
and sterilization. The paper concludes with a discussion on the costs of these policies in the event
of a heavy inflow of foreign capital into India.

Mr. Rai Janakand Dai Sarat

The researcher investigated the nature of financial integration of Indian stock market with global
and major regional markets. It provided various applied finance perspectives on integration
among stock market , checking the sensitivity of result of sample period in an environment of
structural shift.

Raghunathan and Varma (1992) point out that any comparison of the Indian stock market with
those elsewhere must be carried out on a common currency base. They find that in dollar terms,

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the SENSEX return over the 1960-92 period is only about 0.5%, while during the same period
the returns in the U.S. (based on the S & P Index) and the Japanese (based on the NIKEI index)
are 6.1% and 11.4% per year respectively. Over the twelve year period 1980-92, the dollar
returns for SENSEX, S & P and NIKEI indices turn out to be 6.5%, 10.65% and 13.6%
respectively. For a shorter span of seven years, namely 1985-92, the returns for the three indices
turn out to be quite comparable at 15%, 13% and 14% respectively.

Venkateshwar (1991) explores the relationships of the Indian stock markets as reflected by the
Bombay Stock Exchange Index, vis-a-vis other prominent international stock markets. 23
international Stock indices are used over the period 1983-87. He concludes that there is
practically no meaningful relationship between the BSE index and other international stock
market indices, though the British and South Korean indices are inversely related to BSE.

J. Harrison Michael and Kreps David M. (1978) studied Speculative Investor Behavior in a Stock
Market with Heterogeneous Expectations. According to them Ownership of the stock implies not
only ownership of a dividend stream but also the right to sell that dividend stream at a future
date. Investors may be unable initially to achieve positions with which they will be forever
content, and thus the current stock price may be affected by whether or not markets will reopen
in the future. If they do reopen, a speculative phenomenon may appear. An investor may buy the
stock now so as to sell it later for more than he thinks it is actually worth, thereby reaping capital
gains.

Most of the studies reveal that Indian stock market is highly volatile and certain factors influence
the behavior of the investors. Also significant reforms are required if the stock exchanges are to
be geared up to the envisaged growth in the Indian capital market.

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